Fox Corp. Quarterly Ad Revenue Drops, But Fox News Drives 18 Percent Ad Gain at Cable Networks

Fox Corp. CEO Lachlan Murdoch
Drew Angerer/Getty Images

Fox Corp. CEO Lachlan Murdoch

"We love competition," CEO Lachlan Murdoch said when asked by an analyst about Donald Trump potentially launching his own TV news network post-election.

Fox. Corp., led by CEO and executive chairman Lachlan Murdoch and chairman Rupert Murdoch, posted improved quarterly financials that were affected by the coronavirus pandemic, but provided several upside surprises.

While total advertising revenue in the fiscal first quarter fell 7 percent, the company posted an 18 percent advertising revenue increase at its cable networks unit on the strength of Fox News, which has done well in the ratings during this election and pandemic year. So it was fitting Fox Corp. chose election day in the U.S. to tout audience and advertising growth for Fox News to investors and that Murdoch was called on to field an analyst question about how he would react to President Donald Trump possibly starting a news network to counter CNN and other cable news network rivals.

"We love competition. We have always thrived with competition. And we have strong competition now," Murdoch said. And Trump supporters that underpin Fox News' audience may land post-election viewing popular Fox Entertainment fare, he predicted.

"As we enter a more normal news cycle, which has to happen eventually, that appetite for news will shift back to an appetite for great American pasttimes of watching football and watching baseball and watching The Masked Singer or I Can See Your Voice. We look forward to that shift," Murdoch added. Besides Fox News dominating political advertising markets in key battleground and blue U.S. states in the lead up to election day, the Fox Corp. boss pointed to local Fox TV stations also gaining from a record political advertising spend during the latest quarter.

That was welcome as the Fox TV broadcast unit posted a 15 percent ad revenue drop for the fiscal first quarter. UBS analyst John Hodulik had forecast a 26.6 percent ad decrease, better than his previous projection for a 40.2 percent decline.

"Advertising revenues decreased 7 percent, primarily due to the postponement of live events at Fox Sports and certain scripted programming at Fox Entertainment as a result of coronavirus disease 2019, partially offset by continued growth at Fox News Media and growth at the Fox Television Stations driven by political advertising revenues," the company said.

"The results look much stronger than what we expected," Cannonball Research analyst Vasily Karasyov said in a first reaction. "Strength in cable advertising revenue and much lower than expected costs in the television segment stand out."

Fox Corp., which became a stand-alone company focused on news, sports and entertainment  after Murdoch sold big parts of 21st Century Fox to the Walt Disney Co. for $71 billion last year, reported a 2 percent quarterly revenue gain to $2.72 billion despite the coronavirus pandemic, "led by revenue growth at the cable network programming segment."

Affiliate revenue increased 10 percent with increases at the TV and cable networks units. But the company reported a 7 percent decrease in "other revenues, primarily due to lower sports sublicensing revenues at the cable network programming segment as a result of COVID-19."

Quarterly net income increased to $1.12 billion from the $513 million in the prior-year quarter, "primarily due to a gain recognized" that reflects a cash payment received from Disney "related to the reimbursement of the company’s prepayment of its share of the tax liabilities resulting from Disney’s divestiture of certain assets." Adjusted net income increased to $716 million from $521 million.

Fox's operating expenses dropped thanks to lower programming rights amortization and production costs due to the postponement of live events at Fox Sports and certain scripted programming due to the pandemic.

Quarterly adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), another profitability metric, rose 36 percent to $1.17 billion.

Murdoch told analysts Fox Corp. was recovering from a deeper advertising revenue decline earlier this year brought on by the pandemic. "We are sustaining our momentum and building on our strengths. With increased visibility to the market, and a resumption of sports and entertainment production, we are optimistic about and excited for the remainder of the fiscal year," he said.

Murdoch also touted digital-first businesses like Tubi, Credible and FoxBet. He reported Tubi, the advertising video-on-demand platform, had seen a 100 percent increase in overall viewing time year-over-year, without disclosing the size of that Tubi audience when asked during the call.

Fox shares rose more than 4 percent before Tuesday's market open.

Nov. 3, 6:45 a.m. Updated with comments by Fox Corp. execs made during an analyst call.